Note 2. Stockholders’ Equity

Stock-based compensation expense and valuation information

Stock-based compensation expense for all stock awards consists of the following (in thousands):

	Three Months Ended		Three Months Ended
	June 30, 2017		June 30, 2016
Research and development	$	331	$	408
General and administrative	$	1,721	$	1,021
Total	$	2,052	$	1,429

The total unrecognized compensation cost related to unvested stock option grants as of June 30, 2017 was approximately $11,430,000 and the weighted average period over which these grants are expected to vest is 2.53 years.

The total unrecognized compensation cost related to unvested restricted stock units as of June 30, 2017 was approximately $7,814,000, which will be recognized over a weighted average period of 3.40 years.

As of June 30, 2017, there was no unrecognized stock-based compensation expense for restricted stock awards.

The total unrecognized stock-based compensation cost related to unvested ESPP shares as of June 30, 2017 was approximately $21,500, which will be recognized over a period of two months.

The Company calculates the grant date fair value of all stock-based awards in determining the stock-based compensation expense. Stock-based awards include (i) stock options, (ii) restricted stock awards, (iii) restricted stock units, and (iv) rights to purchase stock under the 2016 Employee Stock Purchase Plan (“ESPP”).

The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. Stock-based compensation expense is recognized over the vesting period using the straight-line method. The fair value of stock options was estimated at the grant date using the following weighted average assumptions:

	Three Months Ended			Three Months Ended
	June 30, 2017			June 30, 2016
Dividend yield		—			—
Volatility		74.27	%		71.30	%
Risk-free interest rate		1.62	%		1.20	%
Expected life of options	6.00 years			6.00 years
Weighted average grant date fair value	$	1.79		$	2.03

The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. Due to the Company’s limited historical data as an early-stage commercial business, the estimated volatility incorporates the historical and implied volatility of comparable companies whose share prices are publicly available. The risk-free interest rate assumption was based on U.S. Treasury rates. The weighted average expected life of options was estimated using the average of the contractual term and the weighted average vesting term of the options. Certain options granted to consultants are subject to variable accounting treatment and are required to be revalued until vested.

The fair value of each restricted stock award is recognized as stock-based compensation expense over the vesting term of the award. The fair value is based on the closing stock price on the date of the grant.

The fair value of each restricted stock unit is recognized as stock-based compensation expense over the vesting term of the award. The fair value is based on the closing stock price on the date of the grant.

The Company uses the Black-Scholes valuation model to calculate the fair value of shares issued pursuant to the Company’s ESPP. Stock-based compensation expense is recognized over the purchase period using the straight-line method. The fair value of ESPP shares was estimated at the purchase period commencement date using the following weighted average assumptions:

	Three Months Ended
	June 30, 2017
Dividend yield		—
Volatility		74.70	%
Risk-free interest rate		0.79	%
Expected term	6 months
Weighted average grant date fair value	$	1.04

Preferred stock

The Company is authorized to issue 25,000,000 shares of preferred stock. There are no shares of preferred stock currently outstanding, and the Company has no current plans to issue shares of preferred stock.

Common stock

In May 2008, the Board of Directors of the Company approved the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan authorized the issuance of up to 1,521,584 common shares for awards of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock award units, and stock appreciation rights. The 2008 Plan terminates on July 1, 2018. No shares have been issued under the 2008 Plan since 2011, and the Company does not intend to issue any additional shares from the 2008 Plan in the future.

In January 2012, the Board of Directors of the Company approved the 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan authorized the issuance of up to 6,553,986 shares of common stock for awards of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, and other stock or cash awards. The Board of Directors and stockholders of the Company approved an amendment to the 2012 Plan in August 2013 to increase the number of shares of common stock that may be issued under the 2012 Plan by 5,000,000 shares. In addition, the Board of Directors and stockholders of the Company approved an amendment to the 2012 Plan in August 2015 to further increase the number of shares of common stock that may be issued under the 2012 Plan by 6,000,000 shares, bringing the aggregate shares issuable under the 2012 Plan to 17,553,986. The 2012 Plan as amended and restated became effective on August 20, 2015 and terminates ten years after such date. As of June 30, 2017, 1,978,029 shares remain available for issuance under the 2012 Plan.

On April 24, 2017 the Company filed a Registration Statement on Form S-8 with the SEC authorizing the issuance of 2,297,034 shares of the Company’s common stock, pursuant to the terms of an Inducement Award Stock Option Agreement and an Inducement Award Performance-Based Restricted Stock Unit Agreement (collectively, the “Inducement Award Agreements”).

The Company filed a shelf registration statement on Form S-3 (File No. 333-189995), or the 2013 Shelf, with the SEC on July 17, 2013 authorizing the offer and sale in one or more offerings of up to $100,000,000 in aggregate of common stock, preferred stock, debt securities, or warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities. The 2013 Shelf was declared effective by the SEC on July 26, 2013 and subsequently expired in 2016.

A shelf registration statement on Form S-3 (File No. 333-202382), or the 2015 shelf, was filed with the SEC on February 27, 2015 authorizing the offer and sale in one or more offerings of up to $190,000,000 in aggregate of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities. The 2015 shelf was declared effective by the SEC on March 17, 2015.

In December 2014, the Company entered into an equity offering sales agreement, or the 2014 Sales Agreement, with an investment banking firm. Under the terms of the distribution agreement, the Company could offer and sell up to $30,000,000 of its shares of common stock, from time to time, through the investment bank in at-the-market offerings, as defined by the SEC, and pursuant to the 2013 Shelf.

On July 20, 2016, the Company filed a prospectus supplement to move the remaining $26.6 million of common stock that previously could have been sold pursuant to the 2014 Sales Agreement under the 2013 Shelf to the 2015 Shelf, which does not expire until March 17, 2018. On that same date, the Company filed a post-effective amendment to the 2013 Shelf de-registering all remaining securities that could have been offered by the Company pursuant to the 2013 Shelf. During the three months ended June 30, 2017 and 2016, the Company issued 1,139,489 and no shares of common stock, respectively, for proceeds of $3.0 million and $0, respectively, in at-the-market offerings under the 2014 Sales Agreement. As of June 30, 2017, the Company has sold an aggregate of 3,136,670 shares of common stock in at-the-market offerings under the 2014 Sales Agreement, with net proceeds of approximately $13.7 million. Based on sales through June 30, 2017, the Company can sell an additional $18.8 million of shares pursuant to the 2014 Sales Agreement under the 2015 Shelf. The Company intends to use the net proceeds raised through any at-the-market sales for general corporate purposes, including research and development, the commercialization of the Company’s products, general administrative expenses, and working capital and capital expenditures.

On June 23, 2015, the Company closed the public offering of 10,838,750 shares of its common stock (the “2015 Offering”), which included the full exercise of the underwriters’ over-allotment. The 2015 Offering was effected pursuant to an Underwriting Agreement (the “2015 Underwriting Agreement”), dated June 18, 2015, with Jefferies LLC and Piper Jaffray & Co. (the “Representatives”), acting as representatives of the underwriters named in the 2015 Underwriting Agreement. The price to the public in the 2015 Offering was $4.25 per share, and the Underwriters agreed to purchase the shares from the Company pursuant to the 2015 Underwriting Agreement at a price of $3.995 per share. The net proceeds to the Company from the 2015 Offering were approximately $43.1 million, after deducting underwriting discounts and commissions and expenses payable by the Company. The 2015 Offering was made pursuant to the 2015 Shelf.

On October 25, 2016, the Company closed the public offering of 10,065,000 shares (the “2016 Offering”) of its common stock, which included partial exercise of the underwriters’ over-allotment. The 2016 Offering was effected pursuant to an Underwriting Agreement (the “2016 Underwriting Agreement”), dated October 20, 2016, with Jefferies LLC (the “Representative”), acting as representative of the underwriters named in the 2016 Underwriting Agreement. The price to the public in the 2016 Offering was $2.75 per share, and the underwriters purchased the shares from the Company pursuant to the 2016 Underwriting Agreement at a price of $2.585 per share. The net proceeds to the Company from the 2016 Offering were approximately $25.7 million after deducting underwriting discounts and commissions and expenses payable by the Company. The 2016 Offering was made pursuant to the 2015 Shelf.

During the three months ended June 30, 2017 and 2016, the Company issued no shares of common stock upon the exercise of warrants.

During the three months ended June 30, 2017 and 2016, the Company issued no shares of common stock upon the exercise of stock options.

Restricted stock awards

During the three months ended June 30, 2017 and 2016, there were 0 and 2,259 shares of restricted stock, respectively, cancelled related to shares of common stock returned to the Company, at the option of the holders, to cover the tax liability related to the vesting of 0 and 6,250 restricted stock awards, respectively. Upon the return of the common stock, an equal number of stock options with immediate vesting were granted to the individuals at the vesting date market value strike price.

Restricted stock units

During the three months ended June 30, 2017, the Company issued restricted stock units for an aggregate of 1,862,078 shares of common stock to its employees and directors. These shares of common will be issued upon vesting of the restricted stock units. Vesting generally occurs (i) on the one-year anniversary of the grant date, (ii) quarterly over a three-year period, (iii) quarterly over a four-year period, (iv) over a four-year period, with 25% vesting on the one-year anniversary of the vesting commencement date and the remainder vesting ratably on a quarterly basis over the next twelve quarters, or (v) over a three-year period with 50% vesting on the two-year anniversary of the vesting commencement date and 50% vesting on the three-year anniversary of the vesting commencement date.

A summary of the Company’s restricted stock unit activity from March 31, 2017 through June 30, 2017 is as follows:

	Number of Shares			Weighted Average Price
Unvested at March 31, 2017		1,178,114		$	3.57
Granted		1,862,078		$	2.66
Vested		(36,221	)	$	3.85
Canceled / forfeited		(80,857	)	$	3.21
Unvested at June 30, 2017		2,923,114		$	3.00

On April 24, 2017, in connection with the appointment of a new CEO, the Company allocated 208,822 Performance-Based Restricted Stock Units outside of the 2012 Plan. The Company intends for these to be “inducement awards” within the meaning of NASDAQ Marketplace Rule 5635(c)(4). While outside the Company’s 2012 Plan, the terms and conditions of these awards are consistent with awards granted to the Company’s executive officers pursuant to the 2012 Plan. The Board of Directors has not formally approved the vesting criteria for the Performance-Based Restricted Stock Units, therefore these are not considered granted for accounting purposes and no expense has been recognized for the three months ended June 30, 2017.

Stock options

Under the 2012 Plan, 18,600 and 416,640 stock options were issued during the three months ended June 30, 2017 and 2016, respectively, at various exercise prices based on the closing market price of the Company’s common stock on the date of the grant. The stock options generally vest (i) on the one-year anniversary of the grant date, (ii) quarterly over a three-year period, or (iii) over a four-year period with a quarter vesting on either the one year anniversary of employment or the one year anniversary of the vesting commencement date, and the remainder vesting ratably over the remaining 36 month terms. Stock options can also vest immediately at the grant date or vest after one full year.

On April 24, 2017, in connection with the appointment of a new CEO, the Company granted 2,088,212 stock options outside of the 2012 Plan. The Company intends for these to be “inducement grants” within the meaning of NASDAQ Marketplace Rule 5635(c)(4). While granted outside the Company’s 2012 Plan, the terms and conditions of these awards are consistent with awards granted to the Company’s executive officers pursuant to the 2012 Plan. These stock options vest over a four-year period with a quarter vesting on either the one year anniversary of employment or the one year anniversary of the vesting commencement date.

A summary of the Company’s stock option activity for the three months ended June 30, 2017 is as follows:

	Options Outstanding			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at March 31, 2017		10,956,201		$	4.63	$	4,876,437
Options granted		2,106,812		$	2.73	$	—
Options canceled / forfeited		(160,464	)	$	4.50	$	—
Options exercised		—		$	—	$	—
Outstanding at June 30, 2017		12,902,549		$	4.32	$	3,210,430
Vested and Exercisable at June 30, 2017		7,420,483		$	4.69	$	3,017,444

The weighted-average remaining contractual term of options exercisable and outstanding at June 30, 2017 was approximately 5.61 years.

Employee Stock Purchase Plan

In June 2016, our Board of Directors adopted, and in August 2016 stockholders subsequently approved, the 2016 Employee Stock Purchase Plan (“ESPP”). We reserved 1,500,000 shares of common stock for issuance thereunder. The ESPP permits employees after five months of service to purchase common stock through payroll deductions, limited to 15 percent of each employee’s compensation up to $25,000 or 10,000 shares per employee per year. Shares under the ESPP are purchased at 85 percent of the fair market value at the lower of (i) the closing price on the first trading day of the six-month purchase period or (ii) the closing price on the last trading day of the six-month purchase period. The initial offering period commenced in September 2016. At June 30, 2017, there were 1,447,443 shares available for purchase under the ESPP.

Warrants

During the three months ended June 30, 2017 and June 30, 2016, there were no warrant exercises.

The following table summarizes warrant activity for the three months ended June 30, 2017:

	Warrants		Weighted- Average Exercise Price
Balance at March 31, 2017		221,370	$	7.16
Granted		—	$	—
Exercised		—	$	—
Cancelled		—	$	—
Balance at June 30, 2017		221,370	$	7.16

The warrants outstanding at June 30, 2017 are exercisable at prices between $2.28 and $7.62 per share, and have a weighted average remaining term of approximately 1.61 years.

Common stock reserved for future issuance

Common stock reserved for future issuance consisted of the following at June 30, 2017:

Common stock warrants outstanding			221,370
Common stock options outstanding under the 2008 Plan			622,192
Common stock options outstanding and reserved under the 2012 Plan			12,170,174
Common stock reserved under the 2016 Employee Stock Purchase Plan			1,447,443
Restricted stock units outstanding under the 2012 Plan			2,923,114
Common stock options outstanding and reserved under the Inducement Awards			2,088,212
Restricted stock units outstanding under the Inducement Awards			208,822
Total at June 30, 2017			19,681,327